Fifth Third Bank 2003 Annual Report Download - page 59

FIFTH THIRD BANCORP AND SUBSIDIARIES
57
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
nonaccrual commercial loan and lease balances as compared to
2002 is largely reflective of modest credit improvement and certain
charge-off outflows in several markets including Chicago,
Columbus, Grand Rapids, Evansville and Cincinnati. Table 16
provides a breakout of the commercial nonaccrual loans and leases by
loan size, further illustrating the granularity of the Bancorp’s
commercial loan portfolio. The increase in nonaccrual consumer
loans and nonaccrual residential mortgage and construction loans at
December 31, 2003 compared to 2002 was primarily attributable to
elevated trends in unemployment and personal bankruptcies. The
increase in other real estate owned of $28 million was specifically
attributable to a $9 million increase in commercial loan and lease
related balances, an $11 million increase in residential mortgage and
construction loan related balances and an $8 million increase in
other consumer loan related balances, with no particular market
concentration. Nonperforming consumer loans and other real estate
owned reflect the estimated salvage value of underlying collateral
associated with previously charged-off assets.
Total underperforming assets were $464 million at December
31, 2003 compared to $435 million at December 31, 2002, an
increase of 7%. Total underperforming assets as a percentage of
total loans, leases and other assets, including other real estate
owned decreased 6 bps to .89% at December 31, 2003.
At December 31, 2003, there were $3 million of loans and leases
currently performing in accordance with contractual terms where
there were serious doubts as to the ability of the borrower to comply
with such terms. For the years 2003, 2002, and 2001, interest
income of $5 million, $5 million and $7 million, respectively, was
recorded on nonaccrual and renegotiated loans and leases.
Additional interest income of $23 million, $24 million and $24
million, respectively, for the years 2003, 2002 and 2001 would have
been recorded if the nonaccrual and renegotiated loans and leases
had been current in accordance with the original terms.
A summary of nonperforming and underperforming assets at
December 31 follows:
Table 14–Summary of Nonperforming and
Underperforming Assets
($ in millions) 2003 2002 2001 2000 1999
Nonaccrual loans
and leases . . . . . . . . . .
$242 247 216 174 133
Renegotiated loans
and leases . . . . . . . . . .
8 ——22
Other assets including, other
real estate owned . . . . . 69 26 19 25 19
Total nonperforming
assets . . . . . . . . . . . . .
319 273 235 201 154
Ninety days past due
loans and leases . . . . . . 145 162 164 128 83
Total underperforming
assets . . . . . . . . . . . . . $464 435 399 329 237
Nonperforming assets as a
percent of total loans,
leases and other assets,
including other real
estate owned . . . . . . . .
.61% .59 .57 .47 .40
Underperforming assets as a
percent of total loans,
leases and other assets,
including other
real estate owned . . . . . .89% .95 .96 .77 .61
The portfolio composition of nonaccrual loans and leases and
ninety days past due loans and leases as of December 31 follows:
Table 15–Composition of Nonaccrual and Past Due
Loans and Leases
($ in millions) 2003 2002 2001 2000 1999
Commercial loans
and leases . . . . . . . . . .
$129 159 122 73 53
Commercial mortgages . . 42 41 57 42 25
Commercial construction . . 19 14 26 11 4
Residential mortgages and
construction . . . . . . . . .
25 18 11 42 48
Consumer loans. . . . . . . . 27 15—63
Total nonaccrual
loans and leases . . . . . . $242 247 216 174 133
Commercial loans
and leases . . . . . . . . . .
$15 29 25 31 21
Commercial mortgages
and construction . . . . .
12 18 24 6 5
Credit card receivables . . . 13 9 855
Residential mortgages
and construction . . . . .
51 60 56 49 37
Consumer loans and
leases . . . . . . . . . . . . . . . 54 46 51 37 15
Total ninety days past due
loans and leases . . . . . . $145 162 164 128 83
A summary of commercial nonaccrual loans and leases exposure
by loan size by obligor at December 31 follows:
Table 16–Summary of Commercial Nonaccrual Loans
and Leases by Loan Size by Obligor
2003 2002
Less than $200,000 . . . . . . . . . 23% 16%
$200,000 to $1 million . . . . . . 34 19
$1 million to $5 million. . . . . . 28 34
$5 million to $10 million. . . . . 15 25
$10 million to $15 million. . . . — 6
Total. . . . . . . . . . . . . . . . . . . . 100% 100%
Of the total underperforming assets at December 31, 2003,
$233 million are to borrowers or projects in the Ohio market area,
$61 million in the Illinois market area, $83 million in the Michigan
market area, $56 million in the Indiana market area, $27 million in
the Kentucky market area, $2 million in the Tennessee market area,
and $2 million in the Florida market area.
The Bancorp’s middle market commercial focus, long history
of low exposure limits, avoidance of national or subprime lending
businesses, centralized risk management and diversified portfolio
provide an effective position to weather an economic downturn
and reduce the likelihood of significant future unexpected credit
losses.
Provision and Reserve for Credit Losses
The Bancorp provides as an expense an amount for probable credit
losses which is based on a review of historical loss experience and such
factors which, in management’s judgment, deserve consideration under
existing economic conditions. The expected credit loss expense is
included in the Consolidated Statements of Income as provision for
credit losses. Actual losses on loans and leases are charged against the