Fifth Third Bank 2011 Annual Report Download - page 46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
44 Fifth Third Bancorp
leases decreased to 132 bps compared to 171 bps for the prior year
reflecting moderation of general economic conditions during 2011.
Noninterest income increased $17 million compared to 2010
primarily due to increases in investment advisory revenue. The
increase in investment advisory revenue was driven by an increase
of $10 million in Private Bank income due to market performance
and an increase of $7 million in securities and broker income due to
continued expansion of the sales force and market performance.
Noninterest expense increased $16 million compared to 2010
due to increases in salaries, incentives and benefit expense resulting
from the expansion of the sales force and compensation related to
improved performance in investment advisory revenue related fees.
Average loans and leases decreased $537 million compared to
the prior year. The decrease was primarily driven by declines in
home equity loans of $373 million due to tighter underwriting
standards. Average core deposits increased $901 million compared
to 2010 due to growth in interest checking and foreign deposits as
customers have opted to maintain excess funds in liquid transaction
accounts as a result of interest rates remaining near historic lows.
Comparison of 2010 with 2009
Net income decreased $24 million compared to 2009 as a decrease
in net interest income and an increase in noninterest expense were
partially offset by a decrease in provision for loan and lease losses
and an increase in investment advisory revenue. Net interest income
decreased $19 million from 2009 due to a decrease in average loans
and leases partially offset by an increase in the yield on interest
earning assets.
Provision for loan and lease losses decreased $13 million from
2009. Net charge-offs as a percent of average loans and leases
decreased from 183 bps in 2009 to 171 bps in 2010 reflecting
moderation of general economic conditions during 2010.
Noninterest income increased $20 million compared to 2009
due to an increase in investment advisory revenue partially offset by
a decrease in other noninterest income. Investment advisory
revenue increased $31 million compared to 2009 due to increases in
securities and broker income, private client service income and
institutional income.
Noninterest expense increased $51 million compared to 2009
due to higher personnel expenses as a result of the expansion of the
sales force and compensation related to improved performance in
investment advisory revenue related fees and due to an increase in
expenses associated with the revenue sharing agreement between
Investment Advisors and Branch Banking.
Average loans and leases decreased $538 million from 2009
primarily due to a decrease in commercial loans as a result of a
decrease in demand and a decrease in line utilization rates among
the Bancorp’s high net worth customers due to excess liquidity.
Average core deposits increased $958 million compared to 2009
primarily due to growth in interest checking and foreign deposits.
General Corporate and Other
General Corporate and Other includes the unallocated portion of
the investment securities portfolio, securities gains and losses,
certain non-core deposit funding, unassigned equity, provision
expense in excess of net charge-offs or a benefit from the reduction
of the ALLL, representation and warranty expense in excess of
actual losses or a benefit from the reduction of representation and
warranty reserves, the payment of preferred stock dividends and
certain support activities and other items not attributed to the
business segments.
Comparison of 2011 with 2010
Results for 2011 and 2010 were impacted by a benefit of $748
million and $789 million, respectively, due to reductions in the
ALLL. The decrease in provision expense for both years was due to
a decrease in nonperforming assets and improvement in
delinquency metrics and underlying loss trends. Net interest income
increased from $16 million in 2010 to $321 million for 2011 due to a
benefit in the FTP rate. The change in net income compared to the
prior year was impacted by a $127 million benefit, net of expenses,
from the settlement of litigation associated with one of the
Bancorp’s BOLI policies that was recorded in the third quarter of
2010. The results for 2011 were impacted by dividends on preferred
stock of $203 million compared to $250 million in the prior year.
2011 results included $153 million in preferred stock dividends as a
result of the accelerated accretion of the remaining issuance
discount on the Series F Preferred Stock that was repaid in the first
quarter of 2011.
Comparison of 2010 with 2009
The results for 2010 were impacted by $789 million in income due
to a reduction in the ALLL during 2010 compared to $967 million
of provision expense recorded in excess of net charge-offs during
2009. The decrease in provision expense was due to a decrease in
nonperforming assets and improvement in credit trends as general
economic conditions began to show signs of moderation. The 2010
results were also impacted by $152 million of noninterest income
recognized from the settlement of litigation associated with one of
the Bancorp’s BOLI policies and $25 million of noninterest expense
from related legal fees associated with the settlement. The results for
2009 were primarily impacted by a $1.8 billion gain resulting from
the sale of the processing business. Results for 2009 also included a
$244 million gain on the sale of the Bancorp’s Visa, Inc. Class B
shares, a $73 million benefit from the reversal of the Visa litigation
reserve, an $18 million benefit in noninterest income due to mark-
to-market adjustments on warrants and put options related to the
sale of the processing business and a $106 million tax benefit as a
result of the Bancorp’s decision to surrender one of its BOLI
policies. These benefits were partially offset by a $54 million BOLI
charge reflecting reserves recorded in the connection with the intent
to surrender the policy. Additionally, the Bancorp recorded
dividends on preferred stock of $226 million during 2009 compared
to $250 million during 2010.