Fifth Third Bank 2011 Annual Report Download - page 44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
42 Fifth Third Bancorp
Noninterest expense increased $23 million, primarily driven by
increases in salaries, incentives and benefits expense and card and
processing expense partially offset by a decline in other noninterest
expense. Salaries, incentives and benefits expenses increased $23
million due to an increase in base and incentive compensation
driven by investments in the sales force, as well as additional branch
personnel. Card and processing expense increased $9 million due to
increased costs associated with an increase in the redemption of
points for debit and credit card rewards. Other noninterest expense
declined $21 million primarily due to a decrease in FDIC insurance
expense.
Average consumer loans increased $1.0 billion in 2011
primarily due to increases in average residential mortgage loans of
$1.5 billion due to management’s decision in the third quarter of
2010 to retain certain mortgage loans. The increases in average
residential mortgage loans was partially offset by decreases in
average home equity loans of $421 million due to decreased
customer demand and continued tighter underwriting standards.
Average commercial loans decreased $194 million due to declines in
commercial and industrial loans resulting from lower customer
demand for new originations and continued tighter underwriting
standards applied to both originations and renewals.
Average core deposits increased by $120 million compared to
the prior year as the growth in transaction accounts due to excess
customer liquidity and historically low interest rates outpaced runoff
of higher priced certificates of deposit.
Comparison of 2010 with 2009
Net income decreased $142 million compared to 2009 driven by an
increase in noninterest expense and a decrease in net interest
income partially offset by a decrease in provision for loan and lease
losses. Net interest income decreased $63 million compared to 2009
as the impact of lower loan balances more than offset a favorable
shift in the segment’s deposit mix towards lower cost transaction
deposits.
Provision for loan and lease losses decreased $46 million from
2009. Net charge-offs as a percent of average loans and leases
decreased from 326 bps in 2009 to 313 bps in 2010 primarily due to
improved credit trends and tighter underwriting standards.
Noninterest income decreased $17 million from 2009 primarily
due to decreases in service charges on deposits, partially offset by
increases in card and processing revenue and investment advisory
revenue.
Noninterest expense increased $183 million from 2009 due to
additional personnel expenses, net occupancy and equipment
expense, card and processing expense and other noninterest
expense.
Average consumer loans decreased $153 million primarily due
to a decrease in home equity loans due to decreased demand and
tighter underwriting standards. Average commercial loans decreased
$522 million due to lower customer demand for new originations,
lower utilization rates on corporate lines and tighter underwriting
standards.
Average core deposits were relatively flat compared to 2009 as
runoff of higher priced consumer certificates of deposit, included in
other time deposits, was replaced with growth in transaction
accounts due to excess customer liquidity and low interest rates.
Consumer Lending
Consumer Lending includes the Bancorp’s mortgage, home equity,
automobile and other indirect lending activities. Mortgage and home
equity lending activities include the origination, retention and
servicing of mortgage and home equity loans or lines of credit, sales
and securitizations of those loans, pools of loans or lines of credit,
and all associated hedging activities. Indirect lending activities
include loans to consumers through mortgage brokers and
automobile dealers. The following table contains selected financial
data for the Consumer Lending segment.
TABLE 16: CONSUMER LENDING
For the years ended December 31 ($ in millions) 2011 2010 2009
Income Statement Data
Net interest income $ 343 405 476
Provision for loan and lease losses 261 569 558
Noninterest income:
Mortgage banking net revenue 585 619 526
Other noninterest income 45 51 97
Noninterest expense:
Salaries, incentives and benefits 183 194 181
Other noninterest expense 443 352 328
Income (loss) before taxes 86 (40) 32
A
pplicable income tax expense (benefit) 30 (14) 11
Net income (loss) $ 56 (26) 21
A
verage Balance Sheet Data
Residential mortgage loans $ 9,348 9,384 10,650
Home equity 730 851 995
A
utomobile loans 10,665 9,713 8,024
Consumer leases 158 384 629
Comparison of 2011 with 2010
Net income was $56 million in 2011 compared to a net loss of $26
million in 2010. The increase was driven by a decline in the
provision for loan and lease losses, partially offset by decreases in
noninterest income and net interest income and an increase in
noninterest expense. Net interest income decreased $62 million due
to a decline in average loan balances for residential mortgage, home
equity, and consumer leases as well as lower yields on average
residential mortgage and automobile loans, partially offset by
favorable decreases in the FTP charge applied to the segment.
Provision for loan and lease losses decreased $308 million
compared to the prior year, as delinquency metrics and underlying
loss trends improved across all consumer loan types. Additionally,
2010 included charge-offs of $123 million on the sale of $228
million of portfolio loans. Net charge-offs as a percent of average
loans and leases decreased to 134 bps for 2011 compared to 305 bps
for 2010.
Noninterest income decreased $40 million primarily due to
decreases in mortgage banking net revenue of $34 million driven by
decreases in revenue associated with residential mortgage