Fifth Third Bank 2012 Annual Report Download - page 52

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
50 Fifth Third Bancorp
litigation reserves related to bankcard association membership and
$5 million in other litigation reserve additions.
Net charge-offs as a percent of average loans and leases
decreased to 1.49% during 2011 compared to 3.02% during 2010
largely due to decreases in nonperforming loans and leases,
improved delinquency metrics in commercial and consumer loans
and leases, and improvement in underlying loss trends.
TABLE 17: QUARTERLY INFORMATION (unaudited)
2012 2011
For the three months ended ($ in millions, except per share data) 12/31 9/30 6/30 3/31 12/31 9/30 6/30 3/31
Net interest income (FTE) $903 907 899 903 920 902 869 884
Provision for loan and lease losses 76 65 71 91 55 87 113 168
Noninterest income 880 671 678 769 550 665 656 584
Noninterest expense 1,163 1,006 937 973 993 946 901 918
Net income attributable to Bancorp 399 363 385 430 314 381 337 265
Net income available to common shareholders 390 354 376 421 305 373 328 88
Earnings per share, basic 0.44 0.39 0.41 0.46 0.33 0.41 0.36 0.10
Earnings per share, diluted 0.43 0.38 0.40 0.45 0.33 0.40 0.35 0.10
COMPARISON OF THE YEAR ENDED 2011 WITH 2010
Net income available to common shareholders for the year ended
December 31, 2011 was $1.1 billion, or $1.18 per diluted share,
which was net of $203 million in preferred stock dividends. The
Bancorp’s net income available to common shareholders of $503
million, or $0.63 per diluted share, for 2010, was net of $250 million
in preferred stock dividends. The preferred stock dividends in 2011
included $153 million in discount accretion resulting from the
Bancorp’s repurchase of Series F preferred stock. Overall, credit
trends improved in 2011, and as a result, the provision for loan and
lease losses decreased to $423 million in 2011 compared to $1.5
billion in 2010. Noninterest income decreased from 2010, primarily
due to a $152 million litigation settlement related to one of the
Bancorp’s BOLI policies during the third quarter of 2010 and
reduced service charges on deposits and a decrease in mortgage
banking net revenue. Noninterest expense decreased in comparison
to 2010, primarily due to a decrease in the provision for
representation and warranty claims and a decrease in FDIC expense
and other taxes.
Net interest income was $3.6 billion for the years ended
December 31, 2011 and 2010. Net interest income in 2011
compared to the prior year was impacted by a 22 bps decrease in
average yield on average interest-earning assets offset by a 25 bps
decrease in the average rate paid on interest-bearing liabilities and a
$3.2 billion decrease in average interest-bearing liabilities, coupled
with a mix shift to lower cost deposits.
Noninterest income decreased $274 million, or 10%, in 2011
compared to 2010 primarily as the result of a $152 million litigation
settlement related to one of the Bancorp’s BOLI policies during the
third quarter of 2010, a $54 million decrease in service charges on
deposits primarily due to the impact of Regulation E and a $50
million decrease in mortgage banking net revenue primarily as the
result of a decrease in origination fees and a decrease in gains on
loan sales partially offset by an increase in net servicing revenue.
Noninterest expense decreased $97 million, or three percent, in
2011 compared to 2010 primarily due to a decrease of $59 million in
the provision for representation and warranty claims related to
residential mortgage loans sold to third parties; a decrease of $41
million in FDIC insurance and other taxes, a $22 million decrease
from the change in the provision for unfunded commitments and
letters of credit, a $21 million decrease in intangible asset
amortization and a $19 million decrease in professional service fees.
This activity was partially offset by a $64 million increase in total
personnel costs (salaries, wages and incentives plus employee
benefits).
Net charge-offs as a percent of average loans and leases
decreased to 1.49% during 2011 compared to 3.02% during 2010
largely due net charge-offs on commercial loans moved to held for
sale during the third quarter of 2010 coupled with improved credit
trends across all commercial loan types. In addition, residential
mortgage loan net charge-offs, which typically involve partial
charge-offs based upon appraised values of underlying collateral,
decreased $266 million from 2010 as a result of improvements in
delinquencies and a decrease in the average loss recorded per
charge-off.
The Bancorp took a number of actions that impacted its capital
position in 2011. On January 25, 2011, the Bancorp raised $1.7
billion in new common equity through the issuance of shares of
common stock in an underwritten offering. On February 2, 2011,
the Bancorp redeemed all 136,320 shares of its Series F Preferred
Stock held by the U.S. Treasury totaling $3.4 billion. The Bancorp
used the net proceeds from the common stock offerings previously
discussed and a senior debt offering to redeem the Series F
Preferred Stock. On March 16, 2011, the Bancorp repurchased the
warrant issued to the U.S. Treasury under the CPP for $280 million,
which was recorded as a reduction to capital surplus in the
Bancorp’s Consolidated Financial Statements. On March 18, 2011,
the Bancorp announced that the FRB did not object to the
Bancorp’s capital plan submitted under the FRB 2011 CCAR.
Pursuant to this plan, in the second quarter of 2011, the Bancorp
redeemed $452 million of certain trust preferred securities, at par,
classified as long-term debt. As a result of these redemptions the
Bancorp recorded a $6 million gain on the extinguishment within
other noninterest expense in the Consolidated Statements of
Income.