Fifth Third Bank 2011 Annual Report Download - page 66

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
64 Fifth Third Bancorp
The ratio of consumer loan and lease net charge-offs to
average consumer loans and leases decreased to 179 bps in 2011
compared to 292 bps in 2010. Residential mortgage loan net charge-
offs, which typically involve partial charge-offs based upon
appraised values of underlying collateral, decreased $266 million
from the prior year as a result of improvements in delinquencies and
a decrease in the average loss recorded per charge-off. Additionally,
the prior year included $123 million in net charge-offs that were
recorded on residential mortgage portfolio loans sold during the
third quarter of 2010. The Bancorp’s Florida and Michigan markets
accounted for 58% and 72% of net charge-offs on residential
mortgage loans in the portfolio in 2011 and 2010, respectively. Fifth
Third expects the composition of the residential mortgage portfolio
to improve as it continues to retain high quality, shorter duration
residential mortgage loans that are originated through its branch
network as a low-cost, refinance product of conforming residential
mortgage loans.
Home equity net charge-offs decreased $44 million compared
to the prior year, primarily due to decreases in net charge-offs in the
Michigan market and reduced net charge-offs of brokered home
equity products. Management responded to the performance of the
brokered home equity portfolio by eliminating this channel of
origination in 2007. In addition, management actively manages lines
of credit and makes reductions in lending limits when it believes it is
necessary based on FICO score deterioration and property
devaluation.
Automobile loan net charge-offs decreased $35 million
compared to 2010, due to the origination of high credit quality loans
as a result of tighter underwriting standards and higher resale on
automobiles sold at auction.
Credit card net charge-offs decreased $57 million from 2010
reflecting improving delinquency trends, aggressive line
management, and stabilization in unemployment levels. The
Bancorp utilizes a risk-adjusted pricing methodology to ensure
adequate compensation is received for those products that have
higher credit costs.
Other consumer loan net charge-offs increased $56 million
compared to 2010 due to charge-offs associated with certain
consumer loans that were acquired during the fourth quarter of
2010 when the Bancorp foreclosed on a commercial loan that was
collateralized by individual consumer loans. These loans were fully
charged off as of December 31, 2011.