Fifth Third Bank 2004 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 27
illustrating the diversity and granularity of the Bancorp’s portfolio.
The commercial portfolio is further characterized by 88%
of outstanding balances and exposures concentrated within the
Bancorp’s primary market areas of Ohio, Kentucky, Indiana, Michi-
gan, Illinois, Florida, Tennessee, West Virginia and Pennsylvania.
Exclusive of a national large-ticket leasing business, the commercial
portfolio is characterized by 95% of outstanding balances and 93%
of exposures concentrated within these nine states. The mortgage
and construction segments of the commercial portfolio are charac-
terized by 98% of outstanding balances and exposures concentrated
within these nine states.
Analysis of Nonperforming Assets
Nonperforming assets include nonaccrual loans and leases on which
ultimate collectibility of the full amount of the interest is uncer-
tain, loans and leases which have been renegotiated to provide for a
reduction or deferral of interest or principal because of deterioration
in the fi nancial position of the borrower and other assets, includ-
ing other real estate owned and repossessed equipment. Underper-
forming assets include nonperforming assets and loans and leases
past due 90 days or more as to principal or interest, which are not
already accounted for as nonperforming assets.
Commercial nonaccrual credits as a percent of loans improved
considerably in 2004 to .56% from .68% in 2003 and were primar-
ily driven by the Cincinnati, Columbus, Toledo, Indianapolis and
Evansville markets. Consumer nonaccrual credits as a percent of
loans increased slightly from .19% in 2003 to .21% in 2004 and
was not attributable to any particular market. Overall, nonaccrual
credits continue to represent a small portion of the portfolio at just
.38% as of December 31, 2004, compared to .46% as of December
31, 2003.
Total nonperforming assets were $303 million at December
31, 2004, down $16 million compared to $319 million at Decem-
ber 31, 2003. Total nonperforming assets as a percent of total loans,
TABLE 20: SUMMARY OF NONPERFORMING AND UNDERPERFORMING ASSETS
As of December 31 ($ in millions) 2004 2003 2002 2001 2000
Commercial loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $110 129 159 122 73
Commercial mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 42 41 57 42
Commercial construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 19 14 26 11
Residential mortgages and construction . . . . . . . . . . . . . . . . . . . . . . . . . . 24 25 18 11 42
Consumer loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 27 15 — 6
Total nonaccrual loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 242 247 216 174
Renegotiated loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18—— 2
Other assets, including other real estate owned . . . . . . . . . . . . . . . . . . . . . 74 69 26 19 25
Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 319 273 235 201
Commercial loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 15 29 25 31
Commercial mortgages and construction . . . . . . . . . . . . . . . . . . . . . . . . . 13 12 18 24 6
Credit card receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 13985
Residential mortgages and construction . . . . . . . . . . . . . . . . . . . . . . . . . . 43 51 60 56 49
Consumer loans and leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 54 46 51 37
Total ninety days past due loans and leases . . . . . . . . . . . . . . . . . . . . . . 142 145 162 164 128
Total underperforming assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $445 464 435 399 329
Nonperforming assets as a percent of total loans, leases and other
assets, including other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . .51% .61 .59 .57 .47
Underperforming assets as a percent of total loans, leases and other
assets, including other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . .74 .89 .95 .96 .77
Reserve for loan and lease losses as a percent of total nonperforming
assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 219 251 265 304
Reserve for credit losses as a percent of total nonperforming assets . . . . . . 259 242 251 265 304
Reserve for loan and lease losses as a percent of total
underperforming assets (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 150 157 156 185
Reserve for credit losses as a percent of total underperforming assets . . . . 176 166 157 156 185
(a) As of December 31, 2004, the reserve for unfunded commitments has been reclassifi ed from the reserve for loan and lease losses to other liabilities. The 2003 year-end reserve
for unfunded commitments has been reclassifi ed to conform to the current year presentation. The reserve for unfunded commitments balance was $72 million and $73 million
at December 31, 2004 and 2003, respectively. The reserve for credit losses is the sum of the reserve for loan and lease losses and the reserve for unfunded commitments.
The table below provides a breakout of the commercial nonaccrual loans and leases by loan size further illustrating the granularity of the Bancorp’s
commercial loan portfolio.
TABLE 19: SUMMARY OF COMMERCIAL NONACCRUAL LOANS AND LEASES BY LOAN SIZE
As of December 31 2004 2003 2002
Less than $200,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24% 23 16
$200,000 to $1 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 34 19
$1 million to $5 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 28 34
$5 million to $10 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 15 25
$10 million to $15 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ——6
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% 100 100
TABLE 21: CHANGES IN RESERVE FOR LOAN AND LEASE LOSSES
For the Years Ended December 31 ($ in millions) 2004 2003 2002 2001 2000
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $697 683 624 609 573
Net charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (252) (312) (187) (227) (109)
Reserve of acquired institutions and other . . . . . . . . . . . . . . . . . . . . . . . ——— 6 7
Provision for loan and lease losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268 399 246 201 126
Merger-related provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —— — 35 12
Reclassifi cation of reserve related to unfunded commitments . . . . . . . . . —(73) — — —
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $713 697 683 624 609