Fifth Third Bank 2011 Annual Report Download - page 45

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 43
origination activity. The decrease from 2010 was driven by declines
in origination fees and gains on loan sales of $78 million due to
decreased margins and lower origination volumes, partially offset by
an increase in net servicing revenue of $44 million. Net servicing
revenue increased due to positive net valuation adjustments on
MSRs and free-standing derivatives used to economically hedge
MSRs and an increase in servicing fees as a result of an increase in
the size of the Bancorp’s servicing portfolio.
Noninterest expense increased $80 million driven in part by
increased FDIC insurance expense, as the methodology used to
determine FDIC insurance premiums changed in 2011 from one
based on domestic deposits to one based on total assets less tangible
equity. Additional changes were due to an increase of $41 million in
the provision for representation and warranty claims related to
residential mortgage loans sold to third parties and an increase of
$21 million in losses on escrow advances to borrowers relating to
bank owned residential mortgages. The increase in the provision for
representation and warranty claims was due to an increase in
resolved claims in 2011 compared to 2010.
Average consumer loans and leases increased $558 million
from the prior year. Average automobile loans increased $952
million due to a strategic focus to increase automobile lending
throughout 2010 and 2011 through consistent and competitive
pricing, disciplined sales execution, and enhanced customer service
with our dealership network. This increase was partially offset by
declines across all other types of consumer loans. Average
residential mortgage loans decreased $36 million as a result of the
lower origination volumes discussed previously. Average home
equity loans decreased $121 million due to continued runoff in the
discontinued brokered home equity product. Average consumer
leases decreased $226 million due to runoff as the Bancorp
discontinued this product in the fourth quarter of 2008.
Comparison of 2010 with 2009
Consumer Lending reported a net loss of $26 million in 2010
compared to net income of $21 million in 2009 due to a decrease in
net interest income and an increase in noninterest expense partially
offset by an increase in noninterest income. Net interest income
decreased $71 million from 2009 primarily due to a decrease in
yields on average interest earning assets, which included the impact
of a $23 million decrease in the accretion of discounts on loans
associated with a previous acquisition partially offset by a decrease
in funding costs during 2010.
Provision for loan and lease losses increased $11 million from
2009 as an increase in net charge-offs on residential mortgage loans
was partially offset by decreased automobile loan and home equity
net charge-offs. Net charge-offs as a percent of average loans and
leases decreased from 307 bps in 2009 to 305 bps in 2010.
Noninterest income increased $47 million, as the result of an
increase in mortgage banking net revenue partially offset by a
decrease in other noninterest income. The increase in mortgage
banking net revenue was driven by increases in net valuation
adjustments on MSRs and MSR derivatives and increases in
servicing fees due to an increase in loans serviced for others. The
decrease in other noninterest income was primarily due to decreases
in securities gains related to mortgage servicing rights hedging
activities.
Noninterest expense increased $37 million due to increases in
salaries, incentives and benefits due to the continued high levels of
mortgage loan originations in 2010 and an increase in other
noninterest expense as a result of an increase in the representation
and warranty reserve partially offset by a decrease in loan and lease
expense.
Average consumer loans were flat compared to 2009 as the
increase in automobile loans was offset by decreases in all other
consumer loan and lease products.
Investment Advisors
Investment Advisors provides a full range of investment alternatives
for individuals, companies and not-for-profit organizations.
Investment Advisors is made up of four main businesses: FTS, an
indirect wholly-owned subsidiary of the Bancorp; FTAM, an
indirect wholly-owned subsidiary of the Bancorp; Fifth Third
Private Bank; and Fifth Third Institutional Services. FTS offers full
service retail brokerage services to individual clients and broker
dealer services to the institutional marketplace. FTAM provides
asset management services and also advises the Bancorp’s
proprietary family of mutual funds. Fifth Third Private Bank offers
holistic strategies to affluent clients in wealth planning, investing,
insurance and wealth protection. Fifth Third Institutional Services
provide advisory services for institutional clients including states
and municipalities. The following table contains selected financial
data for the Investment Advisors segment.
TABLE 17: INVESTMENT ADVISORS
For the years ended December 31 ($ in millions) 2011 2010 2009
Income Statement Data
Net interest income $ 113 138 157
Provision for loan and lease losses 27 44 57
Noninterest income:
Investment advisory revenue 364 346 315
Other noninterest income 9 10 21
Noninterest expense:
Salaries, incentives and benefits 164 156 140
Other noninterest expense 257 249 214
Income before taxes 38 45 82
A
pplicable income tax expense 14 16 29
Net income $ 24 29 53
A
verage Balance Sheet Data
Loans and leases $ 2,037 2,574 3,112
Core deposits 6,798 5,897 4,939
Comparison of 2011 with 2010
Net income decreased $5 million compared to 2010 primarily due to
a decline in net interest income and an increase in noninterest
expense partially offset by a decrease in the provision for loan and
lease losses and an increase in investment advisory revenue. Net
interest income decreased $25 million from 2010 due to a decline in
average loan and lease balances as well as declines in yields of 29
bps on loans and leases.
Provision for loan and leases losses decreased $17 million from
the prior year. Net charge-offs as a percent of average loans and