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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
24 Fifth Third Bancorp
TABLE 15: CHARACTERISTICS OF AVAILABLE-FOR-SALE SECURITIES
As of December 31, 2004 ($ in millions) Amortized Cost Fair Value
Weighted-Average
Life (in years)
Weighted-Average
Yield
U.S. Treasuries and Government agencies:
Average life of one year or less . . . . . . . . . . . . . . . . . $ — — — —%
Average life 1 – 5 years . . . . . . . . . . . . . . . . . . . . . . . 1 1 2.0 6.08
Average life 5 – 10 years . . . . . . . . . . . . . . . . . . . . . . 502 490 8.4 3.70
Average life greater than 10 years . . . . . . . . . . . . . . . — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503 491 8.4 3.71
U.S. Government sponsored agencies:
Average life of one year or less . . . . . . . . . . . . . . . . . 5 5 .2 7.15
Average life 1 – 5 years . . . . . . . . . . . . . . . . . . . . . . . 1,677 1,662 3.0 3.60
Average life 5 – 10 years . . . . . . . . . . . . . . . . . . . . . . 354 346 6.2 4.08
Average life greater than 10 years . . . . . . . . . . . . . . . — — — —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,036 2,013 3.6 3.70
Obligations of states and political subdivisions (a):
Average life of one year or less . . . . . . . . . . . . . . . . . 86 88 .5 8.20
Average life 1 – 5 years . . . . . . . . . . . . . . . . . . . . . . . 374 392 3.1 7.65
Average life 5 – 10 years . . . . . . . . . . . . . . . . . . . . . . 348 367 6.5 7.25
Average life greater than 10 years . . . . . . . . . . . . . . . 15 16 11.4 6.63
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 823 863 4.4 7.52
Agency mortgage-backed securities:
Average life of one year or less . . . . . . . . . . . . . . . . . 190 190 .6 6.02
Average life 1 – 5 years . . . . . . . . . . . . . . . . . . . . . . . 13,855 13,796 4.0 4.43
Average life 5 – 10 years . . . . . . . . . . . . . . . . . . . . . . 3,410 3,348 6.1 4.48
Average life greater than 10 years . . . . . . . . . . . . . . . 116 111 10.8 4.65
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,571 17,445 4.4 4.46
Other bonds, notes and debentures (b):
Average life of one year or less . . . . . . . . . . . . . . . . . 29 29 .5 6.53
Average life 1 – 5 years . . . . . . . . . . . . . . . . . . . . . . . 2,187 2,201 3.4 4.20
Average life 5 – 10 years . . . . . . . . . . . . . . . . . . . . . . 644 644 6.9 3.21
Average life greater than 10 years . . . . . . . . . . . . . . . 2 2 16.9 5.63
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,862 2,876 4.2 4.00
Other securities (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006 999 — —
Total available-for-sale securities . . . . . . . . . . . . . . . . . . $24,801 24,687 4.4 4.43%
(a) Taxable-equivalent yield adjustments included in above table are 2.81%, 2.62%, 2.49%, 2.28% and 2.58% for securities with an average life of one year or less, 1-5 years,
5-10 years, greater than 10 years and in total, respectively.
(b) Other bonds, notes and debentures consist of non-agency mortgage-backed securities, certain other asset backed securities (primarily credit card, automobile and commercial
loan backed securities) and corporate bond securities.
(c) Other securities consists of FHLB, Federal Reserve Bank and Federal Home Loan Mortgage Corporation (“FHLMC”) stock holdings, certain mutual fund holdings and equity
security holdings.
TABLE 14: COMPONENTS OF INVESTMENT SECURITIES (AMORTIZED COST BASIS)
As of December 31 ($ in millions) 2004 2003 2002 2001 2000
Available-for-sale:
U.S. Treasury and Government agencies . . . . . . . . . . . . . . . . . . . . . . . . . $ 503 838 303 188 211
U.S. Government sponsored agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,036 3,877 2,308 1,142 1,235
Obligations of states and political subdivisions . . . . . . . . . . . . . . . . . . . . 823 922 1,033 1,198 889
Agency mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,571 21,101 19,328 15,287 13,897
Other bonds, notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,862 1,401 1,084 1,872 1,978
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,006 937 734 792 776
Total available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,801 29,076 24,790 20,479 18,986
Held-to-maturity:
Obligations of states and political subdivisions . . . . . . . . . . . . . . . . . . . . $ 245 126 52 16 475
Other bonds, notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 9——45
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ————33
Total held-to-maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 255 135 52 16 553
billion in 2003. Consumer lease balances decreased 16% in 2004
compared to 2003 largely resulting from continued competition
from captive fi nance companies offering promotional lease rates.
Consumer loan and lease outstandings are affected considerably by
sales and securitizations, which totaled approximately $6.0 billion
in 2004 and $15.6 billion in 2003.
Investment Securities
As of December 31, 2004, total investment securities were $25.0
billion, compared to $29.2 billion at December 31, 2003 represent-
ing a decrease of 14%. The increased rate environment resulted in
a net unrealized loss on the available-for-sale securities portfolio at
December 31, 2004 of $114 million, compared to a net unreal-
ized loss of $77 million at December 31, 2003. Responding to the
change in interest rates, the Bancorp has allocated a greater portion
of current purchases to adjustable-rate and shorter-term securities.
As a result of all purchase and sale activity during 2004, 14% of the
debt securities in the available-for-sale portfolio at December 31,
2004 were adjustable-rate instruments, compared to seven percent
at December 31, 2003. The estimated average life of the debt secu-
rities in the available-for-sale portfolio at December 31, 2004 was
4.4 years based on current prepayment expectations, compared to
5.2 years at December 31, 2003.
Information presented in Table 15 is on a weighted-average