Fifth Third Bank 2003 Annual Report Download - page 57

FIFTH THIRD BANCORP AND SUBSIDIARIES
55
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Balance sheet loans and leases, including loans held for sale,
increased 10% and 13%, respectively, in 2003 and 2002. The
increase in outstandings in 2003 resulted from continued very strong
consumer lending as well as continued growth in commercial loans
and leases.
Consumer installment loan balances, including held for sale,
totaled $17.4 billion at December 31, 2003 compared to $14.6
billion at December 31, 2002, an increase of 20%. Consumer
installment loan balances, including held for sale, increased 20% at
December 31, 2002 compared to December 31, 2001. The increase
in 2003 was attributable to continued strong direct origination
volume in the Indianapolis, Chicago, Cleveland, Detroit, Columbus
and Dayton markets. Consumer installment loan originations were
$7.4 billion during 2003, compared to $6.7 billion in 2002. The
Bancorp is continuing to devote significant focus on producing
banking center based loan originations given the strong credit
performance and attractive yields available in these products.
Consumer installment loan balance comparisons to prior periods are
impacted by the securitization and sale of $903 million in home
equity lines of credit in the third quarter of 2003. The sale of certain
home equity lines of credit was undertaken to limit balance sheet
leverage due to the exceptionally strong demand experienced in this
asset class during 2003 relative to the entire loan and lease portfolio.
In addition to residential mortgage activity, the Bancorp expects to
continue securitization and sale of certain loan classes in 2004.
Residential mortgage and construction loans, including held for sale,
totaled $5.9 billion at December 31, 2003 compared to $7.1 billion
at December 31, 2002, a decrease of 18%. Comparisons to prior
periods are directly dependent upon the volume and timing of
originations as well as the effects of timing on held for sale outflows.
Residential mortgage originations totaled $16.0 billion during 2003
compared to $11.5 billion in 2002. Consumer lease balances
increased 4% at December 31, 2003 compared to December 31,
2002 as a result of continued strong origination volume. Consumer
loan and lease outstandings are affected considerably by sales and
securitizations, which totaled approximately $15.6 billion in 2003
and $9.7 billion in 2002.
Commercial loan and lease outstandings, including loans held for
sale, totaled $27.7 billion at December 31, 2003 compared to $24.7
billion at December 31, 2002, an increase of 12% . The commercial
loan and lease portfolio increase was attributable to growth in middle-
market and small business loan originations and on the strength of
improving demand and new customer additions in Cincinnati,
Columbus, Chicago, Indianapolis, Lexington and Detroit. Tables 10
and 11 provide a breakout of the commercial loan and lease portfolio,
including held for sale, by major industry classification and size of
credit illustrating the diversity and granularity of the Bancorp’s
portfolio. The commercial portfolio is further characterized by 87%
of outstanding balances and 88% of exposures concentrated within
the Bancorp’s primary market areas of Ohio, Kentucky, Indiana,
Florida, Michigan, Illinois, West Virginia and Tennessee. Exclusive of
a national large-ticket leasing business, the commercial loan portfolio
is characterized by 94% of outstanding balances and 93% of
exposures concentrated within these eight states. The mortgage and
construction segments of the commercial loan portfolio are
characterized by 98% of outstanding balances and exposures
concentrated within these eight states. As part of its overall credit risk
management strategy, the Bancorp emphasizes small participations in
individual credits, strict monitoring of industry concentrations within
the portfolio and a relationship-based lending approach that
determines the level of participation in individual credits based on
At December 31, 2003, the available-for-sale securities portfolio
included $77 million of net unrealized losses compared to a net
unrealized gain of $674 million at December 31, 2002. The
movement in market interest rates at December 31, 2003 compared
to December 31, 2002 resulted in a movement of the portfolio to
an unrealized loss position at December 31, 2003.
The credit quality of the available-for-sale security portfolio
continues to be sound, with 88% of the available-for-sale security
portfolio comprised of securities issued by U.S. Government
agencies and U.S. Government sponsored agencies. At December
31, 2003, 95% of the unrealized losses in the available-for-sale
securities portfolio are comprised of securities issued by U.S.
Government agencies, U.S. Government sponsored agencies and
investment grade municipalities. See Note 2 of the Notes to
Consolidated Financial Statements for information on the length of
time individual securities have been in a continuous unrealized loss
position.
Loans and Leases
The Bancorp’s total loan portfolio, excluding held for sale, was
$52.3 billion at December 31, 2003 compared to $45.9 billion at
December 31, 2002, an increase of $6.4 billion (14 percent). The
Bancorp’s held for sale portfolio was $1.9 billion at December 31,
2003 compared to $3.4 billion at December 31, 2002.
The following tables provide the distribution of commercial
and consumer loans and leases, including loans held for sale, by
major category at December 31. Additional loan component detail is
provided in Table 6.
Table 9–Distribution of Loan and Lease Portfolio
(Including Held For Sale)
2003 2002 2001 2000 1999
Commercial:
Commercial . . . . 26% 26 25 24 25
Mortgage . . . . . . . 13 12 14 14 14
Construction. . . . 66 765
Leases . . . . . . . . . 66 665
Subtotal. . . . . . . . . . 51 50 52 50 49
Consumer:
Installment . . . . . 32 30 28 26 22
Mortgage and
Construction . . 11 14 15 17 20
Credit Card . . . . 11 111
Leases . . . . . . . . . 55 468
Subtotal. . . . . . . . . . 49 50 48 50 51
Total . . . . . . . . . . . . 100% 100 100 100 100
($ in millions) 2003 2002 2001 2000 1999
Commercial:
Commercial . . . . $14,226 12,786 10,909 10,734 10,002
Mortgage . . . . . . . 6,894 5,885 6,085 6,227 5,640
Construction. . . . 3,301 3,009 3,103 2,819 2,019
Leases . . . . . . . . . 3,264 3,019 2,487 2,571 2,106
Subtotal. . . . . . . . . . 27,685 24,699 22,584 22,351 19,767
Consumer:
Installment . . . . . 17,429 14,584 12,138 11,249 8,757
Mortgage and
Construction . . 5,865 7,123 6,815 7,570 8,003
Credit Card . . . . 762 537 448 361 318
Leases . . . . . . . . . 2,448 2,343 1,743 2,654 3,190
Subtotal. . . . . . . . . . 26,504 24,587 21,144 21,834 20,268
Total . . . . . . . . . . . . $54,189 49,286 43,728 44,185 40,035