Fifth Third Bank 2012 Annual Report Download - page 47

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
45 Fifth Third Bancorp
revenue sharing agreements between investment advisors and
branch banking.
Noninterest expense increased $17 million, primarily driven by
increases in other noninterest expense due to an increase in
allocated costs related to higher merchant sales and corporate
overhead allocations as a result of strategic growth initiatives,
partially offset by a decrease in FDIC insurance expense.
Average consumer loans increased $775 million in 2012
primarily due to increases in average residential mortgage portfolio
loans of $1.3 billion due to the retention of certain shorter-term
originated mortgage loans. The increases in average residential
mortgage portfolio loans was partially offset by decreases in average
home equity portfolio loans of $560 million as payoffs exceeded
new loan production. Average core deposits increased $1.4 billion
compared to the prior year as the growth in transaction accounts
due to excess customer liquidity and historically low interest rates
outpaced the runoff of higher priced other time deposits.
Comparison of 2011 with 2010
Net income increased $5 million compared to 2010, driven by a
decline in the provision for loan and lease losses partially 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 demand deposit
accounts, 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. Net charge-offs as a percent of
average loans and leases decreased to 210 bps for 2011 compared to
313 bps for 2010. 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 driven by lower service charges on
deposits 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 due to higher debit and credit card
transaction volumes, which 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.
Noninterest expense increased $19 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.
Average consumer loans increased $1.0 billion in 2011
primarily due to increases in average residential mortgage portfolio
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 portfolio 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 $120 million compared to
the prior year as the growth in transaction accounts outpaced the
runoff of higher priced certificates of deposit.
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Consumer Lending
Consumer Lending includes the Bancorp’s mortgage, home equity,
automobile and other indirect lending activities. Mortgage and home
equity lending activities include the origination, retention and
servicing of mortgage and home equity loans or lines of credit, sales
and securitizations of those loans, pools of loans or lines of credit,
and all associated hedging activities. Indirect lending activities
include loans to consumers through mortgage brokers and
automobile dealers.
The following table contains selected financial data for the Consumer Lending segment:
TABLE 15: CONSUMER LENDING
For the years ended December 31 ($ in millions) 2012 2011 2010
Income Statement Data
Net interest income $ 314 343 405
Provision for loan and lease losses 176 261 569
Noninterest income:
Mortgage banking net revenue 830 585 619
Other noninterest income 46 45 51
Noninterest expense:
Salaries, incentives and benefits 231 183 194
Other noninterest expense 439 443 352
Income (loss) before taxes 344 86 (40)
A
pplicable income tax expense (benefit) 121 30 (14)
Net income (loss) $ 223 56 (26)
A
verage Balance Sheet Data
Residential mortgage loans, including held for sale $ 10,143 9,348 9,384
Home equity 643 730 851
A
utomobile loans 11,191 10,665 9,713
Consumer leases 35 158 384